Free Press Urges the California Public Utilities Commission to Reject the T-Mobile/Sprint Merger

December 10, 2018

Contact: Timothy Karr, 201-533-8838

SAN FRANCISCO — On Monday, Free Press Deputy Director and Senior Counsel Jessica J. González participated as a panelist in the California Public Utilities Commission’s workshop on the proposed merger between T-Mobile and Sprint Communications.

The proposed $26.5-billion deal would most acutely harm subscribers who rely on lower-priced wireless options, including people of color who are heavily represented in that demographic. Free Press has argued before the Federal Communications Commission that the two companies have failed to demonstrate that the merger would serve the public interest in any way.

What follows is a rush transcript of Jessica J. González’s opening comments to CPUC:

“I’m a California native. I’m a former Lifeline participant myself, a former public-school teacher, a T-Mobile customer, and a telecom lawyer at Free Press.

"In short, this merger would irreparably harm low-income Californians and California Lifeline participants. It would disproportionately hurt Californians of color, who are more likely to be on the wrong side of the digital divide and to rely on mobile phones as their only internet access points.

"Sprint and T-Mobile are the dominant providers of mobile telecom services to low-income people. One third of T-Mobile-owned MetroPCS and Sprint-owned Boost Mobile customers earn less than $25,000 per year.

"And Sprint and T-Mobile customers are far more likely to be people of color than AT&T and Verizon customers.

"More poor people subscribe to T-Mobile and Sprint for a very simple reason: their plans cost less. They are competing for low-income users that AT&T and Verizon have long forgotten. This merger will kill that competition and we’ll see higher prices across the board. The impacts will be felt more here in California than in some other states. In Los Angeles and Sacramento, Sprint and T-Mobile collectively account for the majority of wireless subscribers.

"In the national market this is a 4-to-3 merger but it is actually a 3 to 2 merger in the prepaid market. New T-Mobile and AT&T would be the only remaining national facilities-based prepaid carriers.

“I’d suggest that if the CPUC wants to understand how the merger will impact poor folks, it must closely examine the prepaid cellular market. Poor people are far more likely to rely on prepaid brands than middle- and high-income folks. And the reasons are really clear: They cost less and they don’t require credit checks.

"Sprint and T-Mobile’s pleadings at the FCC don’t even bother to pretend this merger will lead to lower prices; their own economic models show that prepaid prices will rise. Instead, to justify the merger they argue that harms to prepaid customers will be offset by supposed capacity benefits, which will be primarily enjoyed by heavy data users on post-paid plans. That’s right. They admit that the poorest users will pay more to bring questionable capacity benefits to the wealthiest users, whose prices will also increase.

"This is by definition structural racism, and a CPUC yes vote on this merger is a vote to further institutionalize racism in the telecom sector.

“And even if we set aside the Trump FCC’s cruel plan to eviscerate the federal Lifeline program, this merger will drastically reduce the quality and affordability of Lifeline in our state. The Lifeline marketplace is very dependent on a healthy wholesale market, and this deal would further widen the quality gap between wireless Lifeline offerings and non-subsidized plans.

“Sprint is the only remaining national facilities-based wireless carrier that offers a ‘free’ wireless Lifeline plan. T-Mobile abandoned its Lifeline wireless offerings a couple years ago, claiming it wasn’t profitable enough. This suggests that incentives for carriers to offer Lifeline are already precarious, and that Sprint - as the lowest-cost carrier - has a different view of this market than its suitor T-Mobile, and the 2 other big players: AT&T and Verizon.

“This merger will increase market power for the facilities-based carriers in the wholesale market, leading to higher prices for resellers, who provide about 70 percent of current Lifeline subscriptions. More carriers will exit, and those that remain will lobby the FCC to reduce or eliminate the quality requirements, and that will further widen the digital divide. In turn, more forward-thinking states like California will have to pick up the slack. That might result in higher USF state assessments, which would require increasing an already regressive fee system, burdening users that are slightly above poverty line.

“We don’t have to live in hypotheticals to imagine a less competitive Lifeline market. We can simply look to the past. When the FCC first granted its first wireless Lifeline waiver to Tracfone, Tracfone’s quality was static and meager. It offered 68 minutes of voice per month for the same $9.25 federal rate that’s in place today. And then when Virgin Mobile entered the market with a 200-minute offering, suddenly TracFone increased its offering to 250 minutes per month. It’s clear here through the near quadrupling in size of Tracfone’s offering when it received a little competition that a robust competition in the wireless market overall, and especially in the segment occupied by value-focused carriers.

“And finally, if we’re going to look at this merger’s impact on low income populations, we must consider the facts that were put forth by the Communications Workers of America. They estimate that over 3,000 Californians will lose their jobs if the merger goes through. These jobs are mostly in retail locations, which are largely in and serving low-income neighborhoods.

“This merger means that poor Californians will lose service or have to forego basic necessities to stay connected to jobs, education, health and families. It means that thousands of Californians will lose their jobs.

"For these reasons, Free Press recommends that the CPUC deny this merger request.”